Trader's Guide to Term Structure Methods
a 3 day course that focuses on
the modelling of interest rate evolution in time and its use in valuing
derivatives based on interest rates, including simpler products such as
bonds, bond opt
ions and caps/floors.
focuses on easy
conceptualisation of interest rate processes and their movement in time
· examines in depth
the building of yield curves and underlying dynamics
of products based on yield curves
worked examples to demonstrate concepts and results
learn: to answer questions like:
how are yield
curve dynamics simulated
derivatives priced with stochastic term structures
what are the
strengths and weaknesses of comparative models such as BDT, HJM, Hull-White
with at least 1-year of experience
Table of Contents
consider the basics of arbitrage valuation and stochastic processes
introduction to common modeling approaches
for both static and dynamic views of curves including market convention and
spline curve generation, Principal Component Analyses, and reality impact
considerations for usage, as well as relationship to term-structure models
Basics (parts 1 and 2)
: modeling of price and yield processes under uncertainty including
comprehensive development of modern stochastic methods as applied to the
real world and in terms trader's will understand.
development is then expanded to illustrate the basics of term structure
modelling under uncertainty with a first glance at 1-factor and 2-factor
models, with a lucid derivation of HJM. Analytical, tree, and Monte
Carlo methods are introduced.
Models: Examination and analyses of common 1-factor (both
no-arbitrage and equilibrium based) models including BS, Ho-Lee, Vasicek,
CIR, BDT, BK, Hull-White. The models are explained as well as
compared to one another in a workshop to illustrate the "valuation
implications" of one model vs. another.
Models: Introduction to traditional 2-factor models and
illustrated via MC simulation based methods including a Generic 2-factor
model, and Brennan-Schwarz.
introduction to the ideas and "philosophies" of calibration,
illustration of calibration for 1-factor BDT tree approach, for 1-factor
Hull-White by MLE an method, illustration of calibration of a 2-factor
model by Newton's method. Importantly also includes analyses and
implication of calibration in terms of P&L.
includes a range of issues on the implication of statistical properties of
curves and curve histories, consideration of the benefits of 1-, 2-, 3, or
Position and Portfolio
structure models applied to entire portfolios of derivatives with both
back-testing and forward-testing including step by illustration of bond,
swap, futures, and options based positions with detailed examination of the
impact of different term-structure assumptions.
comprehensive and extensively illustrated Handout Notes (see samples
Plus copies of relevant TG2 Books/e-Books
Seminars can be tailored to your trading, risk, client, and systems needs.
Submit your needs, and/or "cut/paste" from other Seminars (see entire "standard"